Commodities Daily - March 4, 2022

> Oil prices stabilize on Iran nuclear deal prospects. This morning, Brent is trading around $112/bbl, supported by overnight news from Ukraine, of damage to Europe's biggest nuclear plant, and from Libya, where oil supply has been disrupted. Today, Brent is likely to continue consolidating close to $110/bbl as investors continue to focus on developments in Ukraine and await the February US jobs report.> Gold makes slight gains amid mixed statistics. Gold rose from $1,930/oz to $1,935/oz yesterday, while the 10y US Treasury yield slid from 1.86% to 1.84%. Gold is trading near $1,935/oz as we write. The market will today turn its gaze to the US labor market report for February. We expect bullion to trade in a $1,910-1,940/oz range over the session.> Base metals never stopped to rally; iron ore on the rise. Base metals extended gains yesterday, with aluminum touching a new all-time high at close to $3,800/tonne. The geopolitical events and subsequent exacerbation of the energy crisis have remained the key drivers for base metals quotes. Iron ore is also higher on a combination of fundamental and geopolitical factors. We believe the situation in Russia and Ukraine will have a limited effect on iron ore quotes (relative to base metals).OIL PRICES STABILIZE ON IRAN NUCLEAR DEAL PROSPECTSYesterday, Brent fell just short of touching the $120/bbl mark and then began to tumble, reaching an intraday low of $109.4/bbl after several sources close to the Iran nuclear talks in Vienna suggested that a deal is imminent, which seems to imply that the negotiations have effectively concluded and that a new agreement will be announced within days. However, suggesting that the deal is "certain" may be getting slightly ahead of reality, as at least one issue still needs to be resolved. This is a timely reminder that the potential nuclear deal is one of the only bearish risks in a market where prices have been rapidly moving upward over the last week as the conflict in Ukraine intensified and once-steady Russian export flows were disrupted.The negotiators in Vienna have been working hard this week, even as the conflict in Ukraine has raged on, to resolve three main areas of disagreement, which are the scope of the sanctions relief, economic guarantees and the IAEA safeguard investigation. The head of the IAEA will travel to Tehran on Saturday (March 5) to try and resolve the safeguards issue. If that visit proves successful, and if compromises are found on the other two points, then a deal could be finalized early next week.If a deal is announced, the key information for oil markets will be the length of the implementation period, as the US sanctions on Iran's oil exports will only be lifted at the end of the period. We anticipate a two- to three-month implementation period, which could mean the sanctions would be lifted in May-June. Both prices and calendar spreads are likely to strongly correct on headlines confirming an Iran deal, particularly if they coincide with any indications of a partial easing in the current severe disruption to Russian crude exports. Front-month Brent eventually settled at $110.46/bbl yesterday, fixing $2.47/bbl below the previous settlement.This morning, Brent is trading around $112/bbl, supported by overnight news from Ukraine, of damage to Europe's biggest nuclear plant, and from Libya, where oil supplies are facing disruptions due to bad weather. Energy markets have already been upended by the situation in Ukraine, so any further supply disruptions will have an outsized impact on prices and spreads. There are also unconfirmed reports from Libya of an outage at the 0.3 mln bpd Sharara oilfield in the southwestern part of the country, which seems to be unrelated to the weather. Local tribes have been calling for delayed wages and bonuses for weeks, and they may have decided to move ahead with a shut-in just as the country is slipping back into political turmoil. Today, Brent is likely to continue consolidating close to $110/bbl as investors continue to focus on developments in Ukraine and await the February US jobs LD MAKES SLIGHT GAINS AMID MIXED STATISTICSGold rose from $1,930/oz to $1,935/oz yesterday, while the 10y US Treasury yield slid from 1.86% to 1.84% and EUR/USD retreated from 1.111 to 1.107. The geopolitical situation continues to provide support for bullion, while yesterday's US data also provided positive impetus. The ISM services PMI for February unexpectedly came in at 56.5, below the consensus of 61.1 and the January reading of 59.9 due to the spread of Omicron. Respondents cited labor shortages and rapid price increases as the main issues. The US Markit services PMI for February was revised down slightly in the final reading. The services sector was the hardest hit by the pandemic and is still recovering, which is providing support for bullion. Meanwhile, US factory orders for January and weekly initial jobless claims were more upbeat. During his second day of testimony at the US Congress, Fed Chair Jerome Powell reiterated that he supports a 25 bp rate hike at the upcoming FOMC meeting as the geopolitical risks remain elevated. Cleveland Fed President Loretta Mester called for caution and also said she expected a quarter point liftoff.Gold is still trading near $1,935/oz as we write. Today the market awaits the US labor market report for February. The consensus is for 423k new nonfarm payrolls and unemployment at 3.9%. Average hourly earnings are expected to rise 0.5% m-o-m, which would be of interest in the context of inflation and could generate some pressure on bullion, as the Fed may take it as a signal to move more aggressively to curb inflation at its next meeting. However, geopolitical tensions remain to the fore and are likely to continue to provide tailwinds for gold. We expect bullion to trade in a $1,910-1,940/oz range SE METALS NEVER STOPPED TO RALLY; IRON ORE ON THE RISEBase metals continued to rally yesterday. The 3m LME contract for copper was up 1.82% (+$185/tonne from the previous day's close) to settle at $10,351/tonne, aluminum surged 4.13% (+$148/tonne) to $3,717/tonne, nickel rose 3.93% (+$1,018/tonne) to settle at $26,897/tonne and zinc was up 1.54% (+$60/tonne) to $3,921/tonne.Aluminum touched as high as $3,780/tonne intraday. Constraints of supply from Russia (which is already happening although there have been no direct sanctions on commodity producers) remain the key driver for base metal quotes. Furthermore, soaring energy prices are also being priced into current quotes. Zinc and aluminum are the most exposed to this. We believe closures of zinc and aluminum smelters that happened in late 2021 and early 2022 on surging natural gas prices - and thus electricity prices - will remain in place as long as high power prices keep smelting unprofitable. If the situation in the energy market and the geopolitical arena is further exacerbated, we might see new closures, with prices soaring to fresh highs.In the iron ore market, futures in Singapore surged more than 15% this week to a seven-month high of $158/tonne on a combination of factors. First, domestic steel mills have resumed production, which is driving iron ore demand. At the same time, China has confirmed its commitment to increase infrastructure investment this year, while Tuesday's official PMI print showed the economy is somewhat recovering. Besides, we are seeing some easing of the country's zero Covid-tolerance approach, which will definitely help the economy rebound. The geopolitical escalation is also pushing prices higher, but we believe the impact of this factor is limited, as Russia does not have as high of a share of iron ore exports globally as it does of base metals.